It appears that HUD did amend RESPA with regard to the Servicing Disclosure ("We plan to keep of sell your loan").  The regulation will now conform with the 1996 Economic Growth and Regulatory Paperwork Reduction Act, that simplified this disclosure dramatically.  The rule also addresses RESPA disclosures and E-SIGN requirements.

Compliance with most of these the provisions is mandatory January 1, 2010.  We will keep you posted as we learn more.

In August, 240 plus House of Representatives signed a letter calling for HUD to remove their proposal.  The letter also asked HUD to work with the Federal Reserve Board to produce more simplified real estate disclosures.  Well, they aren't listening.

On Wednesday HUD announced that it finalized the changes and is publishing them in Friday's Federal Register.  The changes will become effective on January 1, 2010.  There is a new 3 page Good Faith Estimate and a new 3 page HUD-1 Settlement Statement.  The GFE crosses over into several Truth in Lending requirements (interest rates and loan terms).  It also has tolerances on some closing costs.  It appears the closing script has been removed.

What we don't know is the status of the Servicing Disclosure ("We plan to keep or sell your loan").  The requirement to provide this disclosure changed in 1996, but HUD has never gotten around to writing the regulation to make these changes.  Amazing!

Along with the High Priced Mortgage Loan rules that go in effect in October 2009, real estate loans will be much more difficult to complete (and not near as much fun!)

Take ECOA, for example.  The Commentary to §202.2(f) #3 states, A creditor is encouraged to provide consumers with information about loan terms.  However, if in giving information to the consumer the creditor also evaluates information about the consumer, decides to decline the request, and communicates this to the consumer, the creditor has treated the inquiry or prequalification request as an application and must then comply with the notification requirements under Section 202.9.  Whether the inquiry or prequalification request becomes an application depends on how the creditor responds to the consumer, not on what the consumer says or asks.

This make is very clear that when a lender verbally disqualifies a potential borrower, even on a legitimate underwriting basis, the lender, according to Regulation B, is treating an inquiry as an application and must send an adverse action notice.

RESPA, on the other hand, states that early disclosures are not triggered on a prequalification request until a property is identified.

To help alleviate the grayness and allow you to rein in the possibilities of a "snowballing" violation, we compiled a series of real life scenarios in our November newsletter that often give lenders a difficult time.  You should check it out, you may be surprised.

(i) The amount or percentage of any downpayment.

(ii) The number of payments or period of repayment.

(iii) The amount of any payment.

(iv) The amount of any finance charge.

Section 226.24(c)(2) goes on to state, "an advertisement stating any of the terms in paragraph (c)(1) of this section shall state the following terms, as applicable:

(i) The amount or percentage of the downpayment.

(ii) The terms of repayment.

(iii) The annual percentage rate, using that term, and, if the rate may be increased after consummation, that fact.

This may seem pretty straight forward but you need to take a closer look at the definition of "downpayment".  Section 226.2(a)(18) defines downpayment as "an amount, including the value of any property used as a trade-in, paid to a seller to reduce the cash price of goods or services purchased in a credit sale transaction. A deferred portion of a downpayment may be treated as part of the downpayment if it is payable not later than the due date of the second otherwise regularly scheduled payment and is not subject to a finance charge".

Based on this definition, the "amount of percentage of downpayment" is only a triggering term [§226.24(c)(1)] or a triggered term [§226.24(c)(2)] if the advertisement is for a credit sale (a transaction where the lender is both the seller and the creditor).

I would guess that very few financial institutions advertise credit sale transactions, but still include the "downpayment" in their advertisements.  So put a smile on your face, it isn't every day in the world of compliance that someone tells you that you can disclose less. 

Keeping you informed.

If you read the press release carefully, it appears that this extension is not for chartered banks but rather for other entities under the FTC's jurisdiction.  Many of these entities were unaware that their financial activities would cause them to be a covered "creditor" or "financial institution" under the Red Flags rule.  The press release clearly states that "today's announcement and the release of an Enforcement Policy Statement do not affect other federal agencies' enforcement of the original November 1, 2008 deadline for institutions subject to their oversight to be in compliance."

We contacted our local FDIC office and they are not aware of any extension that would apply to FDIC regulated banks.  So from what we can tell, it looks like banks will need to ensure compliance with the Red Flags rule by November 1, 2008.

If, by a stroke of luck, it is determined that the delay would apply to banks, we suggest that you proceed as usual with the November 1, 2008, date.  You basically get to practice your Red Flags program without the regulatory scrutiny.  So you can't go wrong.

If we learn more we will keep you informed.

Brown & Company: http://ofac.brownandcompany.net/search.asp

Financial Industry Regulatory Authority:  http://apps.finra.org/RulesRegulation/OFAC/1/Default.aspx
(This one allows multiple searches (names) to be submitted at once.)

As we mentioned in August, another method is to simply download the OFAC list in Adobe and then use the search feature.  However, this list will be outdated the next time OFAC updates the list.  Using the two vendors above ensures always checking the most recent list.

You can view/download each section by clicking on the following links:

Address Discrepancy Exam Procedures

ID Theft Red Flag Exam Procedures

Card Issuer Change of Address Exam Procedures

Typically, examiners do not implement changes in their examination process immediately.  They need time to learn the requirements and how they are going to examine institutions.  I predict examinations in the remainder of 2008 will not include these rules to their fullest extent.  If your institution has an exam scheduled in 2009, it's a different story.  Let us know how the examiners are interpreting these rules and how your exams go.  We have a great advantage point with over 500 client institutions and can pass on information to other banks awaiting exams.

If you need assistance implementing these requirements, contact us and we'll help.  Good luck!

Office of Thrift Supervision

Consumer Response Unit

1700 G Street, NW.

Washington, DC 20552.

If you'd like to read the one page Federal Register notice, click here.

Keeping you informed.

"On October 3, 2008, FDIC deposit insurance temporarily increased from $100,000 to $250,000 per depositor through December 31, 2009."

In the near future, FDIC will provide insured institutions with information regarding any changes to the official FDIC sign (teller station signs) and instructions for ordering new official FDIC signs (if changes are made). In the meantime, insured institutions may post the above statement, or affix a sticker with the above statement, next to the official FDIC sign.

You are not required to change your FDIC signs, but you can make a sticker or sign with the above statement, if you'd like.  We'll let you know when new signs are available.

Keeping you informed!